Changes introduced by the Act on the Registration of Beneficial Owners from 1 June 2021
With effect from 1 June 2021, a new Act No. 37/2021 Coll., on the Registration of Beneficial Owners, was promulgated to implement European regulations into Czech law. The Act primarily aims to streamline and simplify the registration of beneficial owners, which was introduced into the Czech legal system in early 2018. Compared to the original regulation, the law introduces several important changes for companies and their owners.
The term beneficial owner (formerly regulated by the so-called AML Act) is newly defined as a natural person who is either the final recipient of funds (and thus can directly or indirectly obtain up to 25% of the total property benefit from the company's activities or liquidation) or a person with ultimate influence (especially the controlling entity within the meaning of the Business Corporations Act).
Above all, the law allows anyone to obtain an extract from the Register of Beneficial Owners. Publicly accessible data now include the first name, surname and address of residence of the beneficial owner, the name and ID number of the company concerned, information on the nature of the beneficial owner's position and the size of his direct or indirect share, and information about whether the person is or was the beneficial owner. In addition, the data on the facts establishing the position of the beneficial owner, a description of the structure of relations and other data specified in Section 13 of the new Act are also entered in the records. It will also be possible to obtain confirmation that no information about the beneficial owner of the legal entity is registered in the records. Disclosure of this data at the request of the beneficial owner will be extremely difficult. The law allows this only in cases worthy of special consideration and if it is not contrary to the public interest.
Another change introduced by the new law is the possibility of imposing fines for non-disclosure of data. These can be imposed, for example, for breach of the obligation to register the beneficial owner in the register, failure to ensure the registration of new data, or failure to provide the necessary cooperation to the registrant.
The company's obligation is to ensure that the valid data in the records always correspond to the actual state. As soon as there is any change, the company is obliged to immediately submit a proposal to initiate the registration procedure. The application is submitted electronically, and it is necessary to document the facts entered in the records, if the court cannot determine these facts by remote access from the registers. In addition to the information contained in the public register, from which an extract may be provided, other documents submitted include the founding legal proceedings, the list of shareholders, the authority's decision to pay dividends, the shareholders' declaration of concerted action or the beneficial owner's consent to certain other recorded facts. If the position of the beneficial owner or the structure of the relationship cannot be documented otherwise, or are not based on legal facts, it is necessary to document at least the statement of the company or the beneficial owner about his position.
In the case of a foreign beneficial owner, it is also necessary to provide an identity document, an extract from the foreign population register or from an equivalent of the public register or foreign registration of the beneficial owners.
The law introduces a number of offences. These can be committed not only by the beneficial owner, but also by a company that does not provide registration. In addition to fines, the main type of sanction is the impossibility of paying a share of the profit to the beneficial owners. The same sanction can be imposed on a business corporation that has no owner registered. In addition, unregistered beneficial owners will not be able to participate in a co-decision, for example to vote at the general meeting!
A pleasant change, on the other hand, is the introduction of automatic registration of the benefical owner from the Commercial Register and other records. It is therefore not necessary to register natural persons who are partners in a limited liability company with a share of more than 25%, or partners in companies which themselves participate in the business of other companies with at least the same share. The same applies to the sole shareholders of joint-stock companies and to other beneficial owners of legal entities who are registered in public registers and meet the conditions for the given type of legal entity.
Of course, beneficial owners have the option of requesting the entry of different data if the automatically entered data does not match the real situation. In addition to automatic registration, there is still the possibility of registration on application, either in court or through a notary.
In order to implement a functioning sanctions mechanism, we recommend that you verify that you have a registered beneficial owner and that this registration is accurate. The same recommendation can be given to the beneficial owners themselves. This obligation now applies not only to business corporations, but also to other legal entities, such as foundations, trust funds or institutions.
Due to the introduction of the above-mentioned sanctions, it will now be necessary to examine the records in detail also within M&A transactions. Due diligence should include a determination of whether your company complies with the legal requirements, as a breach of these obligations could lead to the threat of fines, which neither the transferor nor the transferee may be aware of at the time of the transaction. This, of course, does not affect the already existing obligation to provide data on final owners for companies applying for subsidies or public support.
If the data in the records of beneficial owners are incorrect or even completely missing, we recommend that you enter them no later than 31 May 2021. Your BDO advisors will be happy to help you with this.